UK and Europe: two scenarios for business

Text of presentation given by Dr Robert Davies at the City University British election roundtable event 30 April 2015

Overview: This talk introduces the ‘toxic 5‘ – factors that could destabilise western democracies. Many of these factors my be in position now. Business leaders seeking resilience should consider preparing scenarios based upon the content of this presentation.

‘Whilst flying back from Spain a couple of weeks ago, my mind shifted to this evening’s presentation. I reached forward and took the business flight magazine from the seat pocket in front of me and I started to glance through the pages. The magazine was full of articles and snippets that reflected how we usually think about the future – at least for the UK and Europe. The content confirmed the accepted ‘megatrends’ that strategies must embrace if businesses are to reach their long-term objectives and goals. Some of the topics that I noticed as I scanned through the pages included:

• The continued onward march of technology-led innovation.
• Global economic and cultural connectivity – the eventual emergence of one global marketplace.
• A return to consumer-fuelled growth.
• The next luxury automobile.
• The elimination of poverty.

These are, in large, good familiar things, things that made me feel warm inside, rather like the drink that the flight attendant had just handed to me. My mind then shifted to consider what deep, almost subliminal assumption underpinned this thinking. It struck me that there was one fundamental underlying deep assumption. That deep assumption was that the world would become increasingly open and democratic. An increasingly liberal-democratic marketplace where sensibly controlled capitalism would bring wealth to all. And that is one, commonly accepted scenario for UK, Europe and the business world generally. Europe will always be here, championing the democratic cause. And a lot has been written about this scenario. Possibly too much, and there is little more that I can add to that future story here.

But, if we continue our focus on the UK and Europe in particular, how robust is the assumption that a liberal democratic order will continue? Are we just one catalytic event away from a seismic shift within Europe that the fog of the past and the fog of the present are stopping us from seeing? As I pondered these questions I started to feel colder.

My business school training tells me that robust businesses are those that are good at looking out to the periphery and interpreting, in a less-conventional manner, weak signals of potential seismic shifts. So just what ‘weak’ or somewhat stronger signals do we have out there in Europe?

We could start from the perspective of economic performance. Europe’s struggle with the impact of the Great Recession is well known. Looking back over 10 years, the performance has been at best chequered. Growth, notably in many more Eastern states has been, in relative terms, significant. For others, including Germany and France, performance has been a lot more modest and the immediate prospects for development seem to teeter on a knife-edge. But for others, as we know, the experience has been near catastrophic. The obvious example is Greece, but we must remember that at the end of 2014 Italy’s economy had experienced, over 10 years, five years of contraction. This is a story very much of division.

We then of course have the issue of fragmentation and the rise of secessionist parties, parties that wish to divide and fragment existing nation states. In the UK we are now overly familiar with this issue, but we should bear in mind that there are at least another eight areas in Europe that face these divisive pressures.

It would be difficult to exclude the issue of inequality or social divisions from any debate such as this and it is relevant to note that a report commissioned by the EU and published in 2013 concluded that rising inequality fuelled by the effects of the Great Recession, demographic shifts, ongoing economic globalisation and the prospect of lower global growth would be one of the key challenges that the EU will face in coming years.

But we need to turn our heads and look outside the UK and the Europe. Events in Ukraine and Russia have shown us the power of nationalism and the growing importance of territorial boundaries. But this external influence is also surfacing within the EU itself in the form of a Russian loan to finance new nuclear power stations in Hungary, a potential new gas pipeline agreement between Greece and Russia and a Euro 9m loan from Russia to France’s National Front party.

So, what should we make of this – a series of unrelated disparate problems or a warning that something deeper is afoot?

Well, the weak signals that I have just referred to are those forces that collectively can give rise to a material redefinition of, or even collapse, within democratic societies. Three of the signals that I have mentioned being malfunctioning economies, social divisions and foreign involvement are three of the ‘toxic five’, the five forces that working together can lead to the reshaping or even collapse of democratic societies. The others are institutional decay – where broadly the institutions that support democracy fail to keep up with the emerging needs of the electorate and finally a history of earlier collapses.

And if you thought that there are no viable alternatives to a liberal-democratic world, well ‘viability’ is all in the eye of the beholder, and, as we know, there are other more authoritarian models whose voices now wish to be heard.

History tells us that it is difficult to spot seismic shifts before they break. How many forecast the collapse of the Soviet Union? Who saw that the Great Recession in those early days of 2009 was more than a ‘credit crunch’ or a ‘normal’ recession?

The point is that, almost unbelievably, we may be just one catalytic event away from another seismic shift. A shift that will challenge that one deep assumption that underpins many organisations’ business plans. This shift, if it appears, will have far-ranging consequences for business ranging from the behaviours of core customers, choice of target markets through to the emergence of new influential stakeholders and regulators. The time is ripe for any leader wishing to build a resilient organisation to consider this radically different, but quite plausible scenario of fragmentation. Just relying upon one familiar scenario and a popular assumption may leave business organisations dangerously exposed.’